ON SEMICONDUCTOR Q1 FY26 earnings call ON

onsemi reported a clear inflection point in Q1 FY26, with improving demand signals, accelerating AI data center growth, and sustained gross margin expansion. Management noted strengthening order patterns and an increase in short lead time orders, indicating the cycle has found its low point and the company is on a path to recovery. This positive trend is expected to continue, with the second half of 2026 projected to outgrow the first half, driven by ongoing program ramps across key markets.

The Treo platform is gaining significant traction, with revenue increasing more than 2.5x sequentially in Q1. This growth is driven by broader adoption across high-volume automotive, industrial, and AI applications. Recent design wins include 10BASE-T1S solutions for zonal architectures in software-defined vehicles, ADAS park assist systems, power management for AI client platforms, and inductive position sensing for humanoid robotics. These wins reinforce Treo's penetration into centralized compute models, offering high-power density, efficiency, and faster time to market.

Automotive revenue was roughly flat QoQ but grew nearly 5% YoY, marking the first year-over-year growth after seven quarters of decline, indicating market stabilization. onsemi began production shipments of Treo-based 10BASE-T1S Ethernet solutions for a leading North American OEM's next-generation zonal architecture. The company was also awarded a new IGBT-based traction inverter program with a North American OEM transitioning to direct semiconductor sourcing. onsemi holds approximately 55% silicon carbide share in new 900-volt EV models deployed at the 2026 Beijing Auto Show, highlighting its strong position in this high-growth segment, particularly with Chinese OEMs like Geely and NIO.

AI data center revenue grew more than 30% quarter-over-quarter, nearly double the expected growth rate, and is projected to double year-over-year in 2026. onsemi is establishing a leading position as the only broad-based U.S. power semiconductor supplier for AI data centers, covering the full power tree from high-voltage conversion to system-level integration. The company is engaged with all major power supply vendors and hyperscalers, with its Flex Power partnership spanning over 30 active programs, helping overcome power density and efficiency constraints.

The 'AI halo effect' is driving incremental demand in adjacent infrastructure markets, particularly energy storage systems (ESS). onsemi expects its ESS revenue to grow over 40% year-over-year in 2026, with market share approaching 60%. The company is ramping revenue for a large U.S. OEM's microgrid deployment and announced a collaboration with Sineng Electric for hybrid power integrated modules combining EliteSiC technology and FS7 IGBTs, targeting utility-scale solar inverters and liquid-cooled ESS platforms.

onsemi's GaN solutions design funnel now exceeds $1.5 billion, supported by a rich product portfolio spanning 40 to 1,200 volts. Ten GaN products are currently sampling, with another 20 expected to sample in the second half of 2026, targeting revenue generation in 2027. In sensing, the company secured meaningful design wins with a leading global robotics platform, leveraging its high-resolution image sensor and indirect time-of-flight technology for depth perception and navigation in autonomous systems.

The structural changes and Fab Right actions implemented over the past several years are strengthening onsemi's operating model and enhancing margin durability. Manufacturing utilization increased sequentially to 77% in Q1 to respond to stronger demand signals, and is expected to be flat to up slightly in Q2. The company anticipates sequential gross and operating margin expansion throughout 2026, driven by improved utilization, favorable product mix, and the impact of past fab divestments.